The stock market in the UK could be exposed to some volatility ahead of the interest rate decision

The stock market in the UK could be exposed to some volatility ahead of the Bank of England’s interest rate decision on Thursday were it is expected to see a rise in interest rates to 4.75%.

This is particularly the case after inflation figures were higher than expected earlier today, introducing more uncertainty.

The Consumer Prices Index shows prices rose by 8.7% in the year to May, matching the 8.7% recorded in April, the Office for National Statistics has reported.

Since peaking at 11.1% in October, inflation has dropped a little, but remains over four times above the Bank of England’s 25 target.

Wael Makarem, Senior Market Strategist – MENA at Exness said, “Inflation remains at elevated levels and is not declining as fast as hoped which could push the central bank toward a more aggressive stance in terms of monetary policy.

“The British economy could also come under more pressure under higher interest rates which could affect traders’ sentiment and appetite for risk.

“The increased uncertainty over the size of the interest rate hike could create significant volatility in the stock market after the Bank of England’s meeting.”

Rob Morgan, chief investment analyst at Charles Stanley, said: “With prices showing little response to the Bank of England’s twelve successive interest rate rises, today’s figures seal a further increase in interest rates at the Monetary Policy Committee’s next meeting tomorrow from the current level of 4.5%.

“An increase to 4.75% is all but nailed on, but a shock-and-awe rise of 0.5% to 5% cannot be ruled out.

“The Bank of England will likely maintain tight policy for the remainder of the year, meaning further interest rate rises and no significant rate cuts until 2024.”